As pandemic spreads, a wave of executive teams announce pay cuts

A driver pulls into the truck delivery bay in Oshawa, Ont., Tuesday, September 25, 2007. Murray Mullen says he was focused on the bigger picture when he approached senior executives and directors at his trucking and logistics business Mullen Group Ltd. about taking pay cuts in response to the COVID-19 crisis.THE CANADIAN PRESS/J.P. Moczulski

TORONTO — Murray Mullen says he was focused on the bigger picture when he approached senior executives and directors at his trucking and logistics business about taking pay cuts in response to the COVID-19 crisis.

The chief executive of Mullen Group Ltd. projected how the virus could wreak havoc on the Alberta-based business, which was founded by his family and is now traded on the Toronto Stock Exchange. He said it was essential to start making plans for the company to sustain itself into the early summer.

"My primary objective is this: How do I make sure the business is strong so that I'm around when demand improves?" Mullen explained by phone from his home in Victoria, B.C.

"I can't do anything about this (virus), nobody can do anything about this, but you've got to get people back employed. The most comforting thing I can do is say, 'Look, the company's strong. It'll be around in three months.'"

The board committed to forgoing any pay for 90 days, while his senior teams have "taken somewhere up to a 50 per cent pay cut," he said. Mullen himself gets a salary of $1 per year, with much of his pay made up of performance-based compensation, which he added won't amount to much this year.

Several other Canadian companies have made similar financial commitments in recent days that put temporary restraints on executive salaries, an effort partly to show employees that belt tightening isn't just happening in the lower ranks. But the move can also help companies slow the bleeding of cash that might happen as the bottom falls out of their revenues.

In the oil and gas industry, executives at Canadian Natural Resources and Ensign Energy Services Inc. were among the first Canadian operations to commit to lower salaries in the short term as part of broader reductions in capital spending. Others companies are expected to take similar steps in the coming weeks.

These moves have drawn skepticism from some, including Larry Savage, a professor of labour studies at Brock University, who said he sees alternative motivations behind what are seemingly goodwill efforts.

Savage said he believes some companies are voluntarily lowering executive salaries now in hopes of heading off the federal government, which could require reduced compensation practices for industries that want to qualify for COVID-19 bailout packages.

"As government is asked to step up, and play a larger role in figuring out how to deal with the crisis, people are going to turn their eyes to which companies have proactively taken steps to demonstrate they buy into this idea of: 'We're all in it together,'" he said.

"For a company seen as focused exclusively on its profitability, and not on the public good, I think there may be some repercussions over the long term."

At Mullen Group, the CEO describes unique circumstances thrust upon his business that led to executive salary reductions. Even while shipments of food items and other "needs" are flowing pretty steadily, other parts of the business, such as services dedicated to the energy, mining and forestry industry, have taken a hit.

The company projects temporary layoffs may be issued to half of their staff of 6,100 people as fewer clients require shipping services, Mullen said. A $5-million financial assistance fund has been established for eligible laid-off employees, and company benefits will be maintained, it outlined in a press release.

Elsewhere, the reasons for executive salary reductions vary.

Cineplex Inc., for example, outlined changes to its leadership pay structure that will take place over a month, after it temporarily laid off part-time employees and closed all movie theatres through at least April 2. Its senior executive team will forgo their base salaries for the first two weeks, and receive 40 per cent of their pay for the final two weeks. Other lower-ranking leadership would see their salaries paid at around 55 to 60 per cent, depending on their role.

The monetary challenges facing Cineplex are unique, however, as the movie exhibitor approaches a June 30 deadline for the $2.8-billion takeover of the company by Cineworld PLC. One of the conditions of the transaction is that Cineplex keeps its debt below $725 million, while it's headed into a period some observers say could totally reshape the movie business.

Other companies are focused on a broader reduction in capital spending, which in the resources sector has included delaying major projects.

Energy giant Canadian Natural Resources Ltd. said last week its president would see a salary reduction of 20 per cent. Other members of its management committee will see pay reduced by 15 per cent while vice-presidents and board members would see a smaller reduction of 10 to 12 per cent.

Oilpatch company Ensign Energy Services Inc. announced a pay cut for its top executives on Monday, lowering the salary of its president and chief operating officer by 20 per cent and its chair by 40 per cent.

Recipe Unlimited Corp., which owns marquee brands such as Swiss Chalet, Harvey's and St-Hubert, outlined a voluntary suspension of compensation for its CEO on Tuesday until its locations are "fully back open for business." The food services company, which currently only offers pick-up and delivery options, said the board's compensation was also frozen among other changes that include dividend payment suspension and a temporary halt to royalty fee collection.

But companies will find other ways to compensate their executives that aren't directly tied to salary, Savage suggested, for example payment in shares in the company, preferred stocks, and promises made for when the pandemic is over.

"A narrow focus on salary obscures the picture a little bit," he said.

"Income inequality was a huge problem before the pandemic and that gap between the super rich and the rest of society is likely to grow even more in the wake of COVID-19. The cynic in me says that as soon as the economy turns around, the executives will be the first people asking for bonuses and pay raises."

Partha Mohanram, a professor of accounting at Rotman School of Management, said that while companies can go public with executive salary reductions for disclosure purposes, the leadership is effectively engaging in what's "partly a PR exercise."

"Some of it just signalling (from the companies)," he said. "I'm not saying this is wrong, this is absolutely an appropriate signal... but pardon me if I don't feel all warm and fuzzy by the supposed altruism."

This report by The Canadian Press was first published March 25, 2020.

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Note to readers: This is a corrected story. A previous version improperly quantified the salary reductions of Cineplex leadership.